Can the channel ride the second cloud wave?

James Henderson (ARN); James Ormesher (VMtech); Rhys Shannon (Westcon-Comstor); Cornelius Mare (Fortinet); Steve Rutter (Staples); James King (Fujitsu); Denis Valente (Exclusive Networks); Richard Tomkinson (Cloudten Industries); Matthew Kates (Zerto); Iain Elliott (Viatek Technology); Jamie Warner (eNerds); Nathan Steiner (Veeam) and Marina Brook (StorageCraft)

Product awareness, product interest, product evaluation, product trial and product adoption — the five stages of cloud acceptance have already been negotiated.

With Australian organisations now on board and now investing, cloud has moved past the hype and into the mainstream, creating new opportunities for partners as a result.

Whether it be public, private or hybrid, implementations will continue to accelerate in 2017 as end-users seek to take advantage of the cloud’s economies of scale to build core applications.

But as cloud becomes default, a default cloud channel strategy still ceases to exist.

“The market is challenged by a lack of cloud strategies,” Exclusive Networks, Juniper business manager Denis Valente observed. “Saying cloud strategy implies that businesses have taken a strategic view of the cloud, when the reality is that most have jumped in as early adopters without having a plan.”

Endorsed by IDC research, 67 per cent of all Australian organisations are embracing cloud, using public or private cloud for more than one or two small applications or workloads yet in echoing Valente’s sentiments, only 13 per cent believe that they have an “optimised” cloud strategy in place.

But after a decade of market hype, it may prove surprising for channel partners that the issue of cloud computing is still perplexing to many CIOs, both globally and locally.

Because while cloud computing is a foundation for digital business, currently, less than one-third of enterprises have a documented cloud strategy.

Hybrid world

“The word cloud is the same as the word digital, what does it mean?” Veeam head of systems engineering A/NZ Nathan Steiner asked.

But despite a lack of strategic vision in a cloud context, coupled with added layers of complexity, end-user appetite continues to grow as businesses maximise new ways to innovate both internally and externally.

“Australians are renowned as risk takers and early adopters and we’re definitely one of the most progressive and fastest growing cloud markets globally,” Steiner added. “Three years ago the world was moving towards public cloud at a rapid rate but now the market is transitioning towards hybrid cloud.”

Nationwide, Australian organisations continue to adopt cloud solutions with no bias towards either public or private cloud, indicating that organisations — both large and small — are moving in the direction of a hybrid cloud future.

Currently, there is no consensus around the definition of a hybrid cloud environment — and therefore what is needed to be managed — yet 50 per cent of Australian organisations have already adopted what they consider to be a hybrid cloud strategy.

In addition, IDC research supports the argument that hybrid cloud is the default strategy for the industry, with close to 80 per cent of businesses holding some aspirations for a hybrid cloud environment in Australia.

“Our customers across the country are at various stages of their cloud lifecycle,” Staples regional sales manager — technology solutions Steve Rutter added. “Some of our customers have, from a back-end perspective, been in the cloud for four years but for many the total cost of ownership is not there. At this stage, our customers are pursuing hybrid cloud strategies.”

The range of solutions and services available that interconnect private and public clouds as well as bridging between multiple public clouds has enabled enterprises to adopt solutions based on hybrid cloud architectures.

Consequently, the increased adoption of hybrid cloud to facilitate digital transformation agendas is widely expected to further positively impact the growth of cloud services in Australia.

“Three years ago the conversations were very different with customers compared to today,” Zerto country manager A/NZ Matthew Kates recalled. “The thinking wasn’t well developed around needing to build hybrid cloud strategies. The market was still thinking through an on-premise only, box dropping type mindset.

“But the shift has been dramatic and every conversation I have today, from small customers up to the enterprise, and certainly with every channel partner, is around how do we build a roadmap to enable multi- platform hybrid cloud infrastructure.”

Kates’ observations of the local market align with commonly held analyst beliefs, beliefs that centre on the belief that by 2020, a corporate “no-cloud” policy will be as rare as a “no-internet” policy is today.

According to Gartner, cloud-first, and even cloud-only, is replacing the defensive no-cloud stance that dominated many large providers in recent years, changing the dynamics in the channel as a consequence.

“There was an initial rush to the public cloud but now there’s a realisation that going public doesn’t tick every box,” VMtech national sales manager James Ormesher acknowledged. “Businesses still need to look at resiliency and where workloads are residing, which means that hybrid cloud is the preferred approach.

“When we speak to our customers, we examine where the applications are and where they are going to reside, with the Software- as-a-Service (SaaS) element coming into play.

“But it’s still confusing for the customer because they are no longer examining one or two offerings, which represents a big opportunity for the channel to help them make sense of the solutions available.”

Data is King

Yet choice isn’t the only challenge impacting end-users. In a world where security breaches at large corporations dominate the headlines, the ambiguity that surrounds cloud computing can make securing the enterprise seem daunting.

Delving deeper into the wider notion of security, and considering the growing importance of information, the challenge also exists in the effective back-up and recovery of information data, billed as the new oil of the digital economy.

“There was definitely a huge wave of putting everything in the cloud but now it’s moved towards assessing the recovery options,” StorageCraft director of sales and marketing APAC Marina Brook said.

“Customers now realise they need to have a number of different options available which is where the hybrid solution comes into play.

“Once your data is in the cloud, how safe is it? Is there a need for cloud-to-cloud back-up? The end- user still requires a certain level of education because there’s still confusion in the market.”

While businesses are familiar with cloud and its capabilities, Brook acknowledged that misconceptions and misunderstandings about the technology remain, creating a need for deeper engagement and education at an end-user level.

Because despite the surge in cloud uptake in Australia, security and data recovery concerns continue to be the top inhibitors to adoption.

“Three years ago everyone and everything had to be in the cloud but now businesses have suddenly had a realisation,” Viatek Technology general manager for technical services Iain Elliott added.

“This realisation has been triggered through global and local security breaches, and organisations are starting to ask questions around the security of their data.”

With CEOs and CIOs in sync around the importance of information, executive leaders are starting to grasp the huge potential of digital business, and demanding a better return on information assets and use of analytics as a result.

This approach represents a logical step for businesses, but it’s an approach that places greater significance on the protection of data in the cloud.

“If you move to the cloud what is the impact on your business?” Fortinet systems engineer Cornelius Mare asked. “What about your data? Is it encrypted? From an Australian perspective, security is last on the list and it’s still a reactive approach.”

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For Mare, placing workloads in the cloud does not require a security trade- off, more so a need to understand the exact implications on an organisation from a data standpoint.

New IT influencers

As the market enters the second wave of cloud, the influencers within it are also starting to change, with the CIO no longer the standard- bearer of IT.

Instead, as consumer behaviour infiltrates the workplace, coupled with changing user expectations, pockets of new buyers in the enterprise are emerging.

The result is an increase in technology spending funded by non-IT business units, which is expected to reach US$609 billion in 2017, as every budget becomes a technology budget.

“We find that the bigger the customer and the bigger the corporate entity, because it is so easy to run workloads in the cloud, different departments are beginning to stand up their own projects,” Cloudten industries principal infrastructure architect Richard Tomkinson said.

Representing an increase of 5.9 per cent over 2016, IDC research points to a changing buying landscape for the channel, one which sees line of business (LOB) leaders gain greater control of the technology buying process.

“But there’s no central governance,” Tomkinson cautioned. “Instead, what happens is multiple departments deploying different tools here and there. This might be great for a particular department at a particular time but for the benefit of the organisation, and in a cloud context, a more central approach is required.

“Users are heavily constrained by what they can do on-premise so they take their credit card and spin up a workload in the cloud.”

Originating from a desire to digitise operations, changing competitive landscapes and consumerism are disrupting businesses and creating an imperative to invest in digital transformation.

Consequently, partners are now faced with a new breed of buyer in the cloud, a buyer not bound by CIO tendencies and not tied to legacy decisions of the past.

“The move to cloud used to be more of a lift and shift approach, but now that approach has changed,” Fujitsu solutions director — cloud portfolio James King explained. “We used to sell to the CIO but now we’re selling to the business and those business units are driving cloud spend which creates a new dynamic in the channel.

“In 2016, more than half of the outsourcing contact decisions made worldwide were made outside of the IT department which represents a huge shift in buying patterns.”

As a result, King said the cloud sell is changing, as customers seek consultative services over transactional deals.

“It’s more focused on smaller consulting engagements where you engage with a customer to solve a smaller problem,” he said. “It’s a shift away from being a technology seller and pitching the features of the product to win large chunky deals.

“Now the industry is moving towards small business focused discussions. It’s a different process for partners and because of that we’re competing more with traditional consulting companies.”

By 2020, LOB technology spending is expected to be nearly equal to that of the IT organisation, placing business units in the frontline of the cloud and digital transformation strategies.

Consequently, traditional providers that do not have a strategy to offer cloud based services face challenges ahead, with the onus to evolve business models and create differentiated offerings in a competitive marketplace.

“We’re seeing our competitors under pressure,” Ormesher said. “The kit side of the market is deteriorating and partners are struggling to adapt. We’ve successfully made that transition because we spotted the opportunity a number of years ago and directed our efforts towards managed services to boost our annuity revenue streams.

“But some parts of the channel are pushing hard on hardware, when it might not be relevant anymore. Likewise however, born-in-the-cloud providers are pushing hard on public cloud sales when that equally might not be relevant.

“There’s a balancing act required. Today, customers are less bothered by the technology or the brand under the covers.”

As the forces of cloud, social, mobile and information reconfigure how people work and live, the channel is now aligning with vendors capable of capitalising on such change, addressing the fluctuating demands of the customer in the process.

“If you think about the cloud conversations taking place today, it’s about solutions,” Westcon-Comstor director of cloud and service solutions A/NZ Rhys Shannon added. “The beauty of cloud is in its simplicity but traditional vendors still approach cloud in a complex manner, through the way it is ordered, processed, measured and tracked.

“It’s a complex undertaking and the industry as a whole hasn’t figured out how to make things simple.”

Selling cloud

To create value in the cloud, partners are required to understand business opportunities in new ways, with a need to step away from traditional methods in favour of an outcome- focused approach.

“If customers understand the reason why they are moving to the cloud, then it presents an opportunity to discuss the security aspect of the migration,” Mare advised. “But the channel must be able to articulate the benefit of cloud because customers must understand the growth potential and build a suitable strategy around that.”

As a vendor, Mare said technology manufacturers must work with channel partners to help demonstrate the value of cloud, detailing the pros and cons from an outcome perspective to trigger end- user adoption.

“How can partners help?” he asked. “They can show the compelling reason for businesses to change and adopt cloud because being aware of the risks is key from an education standpoint.”

While cloud uptake is accelerating across all aspects of the market, selling differs from small and medium businesses (SMB) to the enterprise, with business owners seeking advice and guidance along the way.

“As an MSP focusing on the SMB market, ultimately you don’t have a product,” eNerds CEO, Jamie Warner, said. “You’re a service provider that has multiple vendor products that formulate a solution.”

Primarily, Warner said MSPs are selling “piece of mind” in the cloud, rather than pursuing archaic sales processes.

“When you knock on the door and say to the customer that I’m better than the other provider, you’re relying on relationships,” he explained. “Alternatively, you can come in and say that you understand their business and that you can see they are operating in the old way.

“Then you can demonstrate how the customer can take advantage of the latest cloud technologies and it’s a conversation they will have. SMBs want to hear your vision for the future rather than just coming in and simply taking over the last provider.”

But despite the new techniques required by partners when selling cloud technologies, old habits continue to creep into the channel process, with resellers continuing to rest on old laurels.

“There’s still a tendency to want to do the same as we have done before but do it slightly better,” King said. “But the customer wants something entirely different.

“The channel is now challenged to move away from the mindset of focusing on incremental improvement to looking at an entirely different way of doing things.”

Citing the example of Amazon Web Services (AWS), King said that because the cloud giant started out as a book seller rather than an IT vendor, it wasn’t bogged down by the baggage of past decisions.

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“They are constantly looking outside of the box and are focusing on where the customer wants to be in two years time, rather than two years ago,” he added.

For Elliott, the industry as a whole remains in a “race to the bottom” through the move to cloud.

“Realistically, if you can make seven per cent out of reselling a cloud service then you’re doing well,” he said. “Then everything is the value you can add on top of the platform. It’s now a business conversation and as a partner we are selling value.”

In the channel, resellers have always lived or died by the extra value they bring around support and services, with cloud providing another opportunity to create incremental revenue streams going forward.

Partner leverage

In looking ahead, and as more leading-edge IT capabilities become available only in the cloud, reluctant organisations will edge closer to cloud adoption.

Change will not only arrive at the door of the customer however, but also the partner, with rigid resellers incapable of producing agile IT solutions.

Spanning technology and business challenges, transitioning from a transactional player to a leading cloud provider is a transition fraught with difficulties, creating a need for partners to leverage the wider capabilities of the channel — which includes distribution.

While the critics continue to think of distributors as pick-pack-ship operations with “order fulfilment” as a primary function, history shows that wherever technology goes, distribution follows, with cloud proving no exception for the channel.

“The key in distribution is to navigate very complex vendor processes and simplify them for our partners,” Valente said. “Some of the processes and compliance issues in place are very complicated and for resellers, complication equals cost. Our role is to take the cost out of their business.

“Yes, there’s the usual throw away line that distributors are just a bank, or a credit provider or a warehouse — but the warehouse in particular doesn’t come into play when we’re talking about cloud.”

Traditionally, distribution survived to support the partner through engagement and enablement. In 2017 however, cloud has rewritten reseller and distributor relations.

“We place a lot of value on distribution even through the cloud,” Brook said. “Lots of distributors have a cloud marketplace but unless the back-ends become more sophisticated, it’s still a manual process from a billing perspective for partners.

“On the whole, there is still a lot of work to be done because billing must be seamless, less manual and less time consuming.”

As explained by Brook however, the conversations with partners are changing, reflecting the evolving role of distribution in cloud.

“Before it was just about providing a price on X, Y and Z, but distributors are having deep conversations and helping resellers transition from VARs to MSPs,” Brook added.

Following a historic focus on transaction management, partner recruitment, training, on-boarding and longer-term sales support however, cloud-focused partners can sometimes struggle to see the future value of wholesale distributors.

“It’s a historical artefact,” Elliott said. “If you’re starting out in the market today why would you use a distributor? As a business, if I know what I need and I can buy it straight from the vendor then what value does a distributor add if it’s just download and off I go?”

According to Elliott, success in the cloud is defined by agility, with partners better placed to go direct over leveraging distribution.

“I’m not disputing the historical role of the distributor but in the context of cloud and in a digital economy, I don’t need distribution,” he said.

Through time, there have been numerous transitions in the IT products and services market that put the role of the distributor in question.

Yet in 2017, distribution continues to show its strength, providing cloud services and support to a blend of traditional, transitioning and born-in- the-cloud partners.

“Value-add is an over-used term and comments around distribution aren’t new,” Shannon acknowledged. “From a vendor perspective, we provide scale and make it simpler to sell into areas of the market previously unattainable.

“From the partner perspective, our value proposition doesn’t change in the cloud because we are still normalising technologies and processes and making it easier for resellers to do business. Cloud simply makes our role different, but not irrelevant.”

For distribution to remain relevant in the cloud, Shannon said the industry is innovating faster, investing in tools and processes to ensure platforms are up-to-speed with the market demands of the channel.

“We’re opening millions every year on our infrastructure and platforms just to keep up,” he said. “Distribution as a whole wasn’t doing that 5-10 years ago but now the industry is investing millions to stay at the leading edge of the market.

“We’re moving past the conversation of whether distribution is relevant in the cloud, it clearly is but we understand that we face an ongoing process to remain relevant to our partners.”

The emergence of cloud has transformed distribution, with the role of the vendor also evolving as new players enter the market.

“Vendor selection is a crucial part of our decision making process in the cloud,” Ormesher said. “We examine what vendors are doing in the market and crucially, what they are offering that is different in cloud.

“We have a mix of traditional vendors and an emerging, new breed of vendors. We categorise vendors on technology, billing methods, consumption models and whether they fit in how we deal with our customers.”

Echoing Ormesher’s observations, Kates said billing remains a key part of any vendor offering for the channel in the context of cloud.

“It’s crucial to be able to provide and deliver elastic cost models,” he said. “Partners don’t want vendor lock-in and they want flexible billing which are key deliverables in the cloud.”

In looking ahead, Australian businesses continue to embrace cloud offerings at pace, and while usage maturity levels are low, the hybrid model is seen as the best route to gaining the full benefits of cloud.

On paper, the market opportunity is widening for partners keen to capitalise on the potential of cloud. But as the channel edges towards the skies, they should do so with caution.

“IT is becoming harder,” Steiner observed. “But things getting harder shouldn’t be perceived as a threat, it offers opportunities for the channel. It’s a very competitive landscape and if you look at the world’s largest public cloud provider, they were born selling books.

“And from a customer perspective, cloud has disrupted decision making processes. Businesses have a cloud- first strategy but what does that mean? Does that mean a half, a quarter or all in? Partners that can make sense of this and advise customers along the way will succeed.”

This roundtable was sponsored by Exclusive Networks, Fortinet, StorageCraft, Westcon-Comstor, Veeam and Zerto. Photos by Maria Stefina.